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Frequently asked questions about Italian taxation
The Italian tax system is renowned for being complex and in constant evolution. That doesn’t mean, however, that it’s not possible to do business in Italy; instead, this is one of those cases where it pays to learn as much as you can. While it’s not possible to address a specific issue in a FAQ format, these are the questions that I hear the most and the answers should start you on your way to gaining the knowledge you need.
Q: Do I have to pay taxes in Italy? I already pay them at home!
The short answer to this question is that if you are working in Italy, the likelihood that you owe Italian taxes is very high. As a general principle, those who are considered tax resident in Italy are taxed on their worldwide income; in other words, Italian tax residents are taxed on the income they earn in Italy and the income they earn in any other country in the world.
On the other hand, non-residents are only taxed on the income that is produced in Italy. Therefore, for example, if you worked as an employee on Italian territory, you would owe Italian taxes on that income but not on the employment income that you may have earned abroad before moving to Italy.
Many countries have entered into tax treaties with Italy so if your home country would also tax income that is taxable in Italy, the tax treaty would work to reduce that double taxation.
Q: How do I know if I’m tax resident in Italy?
The Italian tax code states that an individual is considered tax resident in Italy if he or she satisfies at least one of the following three criteria for more than half of the calendar year:
Registration with the Anagrafe (Office of the Resident Population);
Having your center of vital interests in Italy;
Having your habitual abode in Italy.
The Anagrafe is a local municipal office where a person registers his the address where he or she regularly lives. It is a critical part of living in Italy because it has implications for numerous aspects of life in Italy; for example, you will be asked for it in order to obtain a telephone line, register with the public health care service, buy a car, send children to Italian state schools and so forth and so on.
A person’s center of vital interests is an assessment of a variety of factors that would connect a person to a specific locale. The primary consideration is where one’s family lives but other factors are also considered: where one’s social network is located, where one earns income, the publishing of marriage vows, where one belongs to clubs, etc.
Finally, having a habitual abode refers to identifying the place where a person returns to regularly after work, after vacation, after business trips. In other words, your habitual abode is the place where you go when you have no other place to go.
Q: What are the personal income tax rates in Italy?
Individuals pay taxes determined using the 2007 tax rates shown in the below table. These tax rates are applied progressively so that the first € 15.000 of income is taxed at 23%, the next € 13.000 are taxed at 27% and so forth.
| 0 | € 15.000 | 23% |
| € 15.001 | € 28.000 | 27% |
| € 28.001 | € 55.000 | 38% |
| € 55.001 | € 75.000 | 41% |
| € 75.001 | and up | 43% |
Italian regions can also tax an individual but the rate of taxation depends on where the taxpayer resides. Currently, the tax rates range from 0,9% to 1,4%.
Finally, the individual municipalities also have the power to tax. The tax liability cannot exceed 0,8% of income.
Q: What are the corporate income tax rates in Italy?
The corporate tax rate is 33% and is applied to income net of deductible expenses. Many companies are also subject to IRAP, the tax on productive activities, which is charged at 4,25%. This tax was subject to much debate within the European Union and many were expecting it to be abolished. Alas, it was not only confirmed but increased to 5,25% for those living in certain regions, such as Lazio, where it was determined that additional funds were required to cover the exorbitant costs of the public health care system.
Q: Must I pay social security contributions if I work in Italy?
Social security contributions are due on a territorial basis. That means that if you perform a working activity in Italy, you have to pay Italian social security charges as well. Italy has entered into totalization agreements, which are similar to tax treaties that may provide for exceptions to this rule.
Q: Do I need a visa to work in Italy?
This isn’t really a tax question but it does present significant implications regarding one’s ability to legally work in Italy since an employer can be subject to significant penalties if found to have a foreign citizen working without the proper authorizations. Individuals who are EU nationals do not have to obtain a visa from the Italian embassy located in their home country prior to coming to Italy. Everyone else must obtain a visa before coming to Italy and must then request a permit to stay within 8 days of arriving.
Recent legislative changes have shaken up immigration procedures; once the dust settles, We will add a FAQ section dedicated to immigration.
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